The opinion of the court was delivered by: WILLIAM T. HART
In an order dated March 25, 1993 (Brown v. LaSalle Northwest National Bank, 1993 WL 96494 (N.D. Ill. March 29, 1993)), it was held that plaintiff had failed to satisfy the requirements of Fed. R. Civ. P. 9(b) in pleading a pattern of fraudulent racketeering activity. Therefore, plaintiff's allegations of a violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., were found to be deficient and her cause of action was dismissed. Judgment was entered on March 29, 1993. Plaintiff then timely moved to file an amended complaint curing the deficiency previously held to exist. Plaintiff's motion to vacate judgment to permit amendment of her complaint is presently pending.
Plaintiff's proposed amended complaint cures the Rule 9(b) deficiency that her original complaint had. She now alleges four other specific transactions that allegedly were procured with fraud. She has adequately identified these transactions and the nature of the fraud so as to satisfy Rule 9(b). Contrary to plaintiff's statement in her motion, the prior decision did not hold that plaintiff otherwise adequately alleged a RICO violation. It was only assumed that plaintiff otherwise alleged a RICO violation.
The grounds that defendant raised for dismissal of the original complaint will now be considered as regards the amended complaint.
Named plaintiff Mary Brown brings this putative class action against defendant LaSalle Northwest National Bank ("LaSalle"), which allegedly financed her purchase of an automobile. According to the allegations of the complaint, plaintiff purchased a used automobile from Lake Automotive ("Lake"), but was unable to register it because Lake did not have good title to the automobile. Lake arranged financing through defendant. Plaintiff contends that regulations of the Federal Trade Commission ("FTC") required that certain provisions be in the loan documents. In particular, there should have been a provision that would allow plaintiff to raise a defense of bad title to any attempt to collect on the loan. No such provision is in the loan documents. Plaintiff's complaint contains two counts. Count I is a federal claim for RICO violations. Count II is a state law claim pursuant to the Illinois Consumer Fraud and Deceptive Business Practices Act ("Consumer Fraud Act"), Ill. Rev. Stat. ch. 121 1/2, P 261 et seq. (1991) (recodified as 815 ILCS 505 (1993)).
The FTC regulation that plaintiff relies upon provides:
In connection with any sale or lease of goods or services to consumers, in or affecting commerce as "commerce" is defined in the Federal Trade Commission Act, it is an unfair or deceptive act or practice within the meaning of Section 5 of that Act for a seller, directly or indirectly, to: . . .
(b) Accept, as full or partial payment for such sale or lease, the proceeds of any purchase money loan (as purchase money loan is defined herein), unless any consumer credit contract made in connection with such purchase money loan contains the following provision in at least ten point, bold face, type:
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
Plaintiff's claim is not one directly under this regulation; it is a RICO claim. However, as plaintiff recognizes, if the FTC regulation does not apply to Brown's transaction, plaintiff has no RICO claim.
The regulations define a purchase money loan as a "cash advance which is received by a consumer in return for a 'Finance Charge' . . ., which is applied, in whole or substantial part, to a purchase of goods or services from a seller who (1) refers consumers to the creditor or (2) is affiliated with the creditor by common control, contract, or business arrangement." 16 C.F.R. § 433.1(d). A business arrangement is defined as "any understanding, procedure, course of dealing, or arrangement, formal or informal, between a creditor and a seller, in connection with the sale of goods or services to consumers or the financing thereof." Id. § 433.1(g).
On a motion to dismiss, all the well-pleaded factual allegations of the complaint are assumed to be true with all reasonable inferences drawn in the light most favorable to plaintiff. National Organization for Women, Inc. v. Scheidler, 968 F.2d 612, 616 (7th Cir. 1992). "An action may only be dismissed if the complaining party 'can prove no set of facts in support of [her] claim which would entitle [her] to relief.'" Id. (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)).
Plaintiff alleges that defendant had an arrangement with State Farm insurance agents to refer automobile customers to defendant for financing. Automobile dealers, including Lake, would refer customers to particular State Farm agents for obtaining insurance and financing information. The State Farm agents would then refer the customers to defendant for financing. Defendant supplied form loan documents to the State Farm agents and automobile dealers. Defendant would not accept any note that contained the provision required by the FTC regulation. It is further alleged that defendant intentionally made this arrangement to avoid informing customers of their rights under the FTC regulation and to attempt to ...